To make product partnerships work avoid the inevitable pitfalls

By Philip Brown , written on July 6, 2013

From The News Desk

As more competing companies and services launch online, it's harder for newbies to gain traction. That's because individual signals get lost. Now, there's a lot to be said about having the best insert-that-thing-you-want-to-sell here, but one of the most overlooked attributes of a successful product is distribution. Without it you have no hope of succeeding because it doesn't matter how good your product is if nobody can find it.

One way to gain this reach is through partnerships. The problem is that most of them fail. But if you understand why you can position yourself to make them work by avoiding the big problems that often arise.

Truly successful companies have a clear understanding of distribution as a core competency. Intercom and Buffer, for example, have earned traction by appealing to early adopters through publishing high quality and regular content. But, as Dave McClure recently ranted, the majority of companies don't understand the critical importance of distribution to move beyond the early adoption phase.

Partnerships offer opportunities for growth and recognition, but the best ones provide both parties something. They allow both companies to talk to each other's audiences. Product partnerships usually fit only when the products are complementary. This means access to this new audience is highly qualified. Two promising companies that have joined into partnership are Moz and Buffer. Both  provide marketing and social media tools, but  recently joined forces to enable users to schedule their tweets when their followers are most active. This allows both companies to talk to each other’s highly qualified customer base.

When two products enter a partnership, customers gain added value. If you, say, bundle two products or significantly reduce the price of buying them because they are sold as a package, the customer gain values through lower cost. The partnership may significantly increase the buyer value by creating a better customer experience. Foursquare and American Express partnered in 2011 to offer money back to Foursquare users when they connected their Amex card to their account. The partnership not only rewarded Foursquare users for using the app, but increased brand awareness for American Express.

When companies reach a certain scale it becomes difficult to focus on solving specific problems. Instead of creating new products, larger companies often acquire or partner with smaller companies that focus on that one problem. In 2012, AT&T partnered with Twilio, which helps developers develop communications tools, to offer Twilio’s technology to their customers. This not only solved many technical issues and complexity that AT&T customers were facing, but also provided a revenue boost and recognition for Twilio.

The vast majority of the time, however, partnerships don't work. The biggest problem is  the derived value is not equal. It's rare a smaller company can provide enough to the bigger company. As companies get bigger, it becomes increasingly difficult to move the needle. The value from the partnership is likely going to be imperative for the smaller company, but not interesting to the larger company. Marqeta’s partnership with Facebook looked, at first, to be promising, but is not having a big impact on Facebook’s quest to crack the gift market. The partnership is heavily weighted to one side, and so it is up to Facebook to make it work. If it can't, Zuckerberg and his minions are likely to cut the string prematurely.

The problem with partnering with a company in an adjacent space is, the goals of the two companies will collide. This has played out over the last couple of years as Twitter has retracted access to its API to Tumblr, Instagram, LinkedIn and thousands of individual developers. And if the smaller company can't handle this sudden wave of attention, both companies suffer because the customer has a poor experience. When Starbucks and Square first announced their partnership, it was hailed as an ingenious move by both companies. Then complaints from customers and Starbucks staff began flooding in when Starbucks staff were unable to process these transactions. So when entering into a significant partnership, you need to communicate with your employees and  customers.

I think the best way to make a partnership work is to become a whole product partner. This means, give away full access to your product through the partnership. By making this bigger commitment, both parties will be more invested in making this work and providing value to the customer.

It comes down to ease of integration. Make it simple for your employees and customers. This means having an API that distils your technology into an easy to use interface. You don’t want the partnership to lost in translation.

Avoid these pitfalls, which is, of course easier said than done, and your partnership has a chance to succeed. When it does, it's a beautiful thing to behold – for both parties.